DailyPlay – Opening Trade (DHI) – September 19, 2024

DHI Bullish Opening Trade Signal

Investment Rationale

The CME FedWatch tool indicated this week about a 50/50 chance between a 25 basis point cut and a 50 basis point cut. Rumor has it that someone eavesdropping outside the FOMC meeting overheard Chair Powell quip, “hold my beer,” as the Fed went ahead and announced their decision to cut the Fed funds rate by 50 basis points. The Federal Reserve also signaled plans for two more rate cuts later this year, followed by an additional four cuts in 2025.

Regarding yesterday’s Daily Play in D.R. Horton (DHI), the larger cut implies that mortgage rates will most likely decrease more rapidly. The stock drifted lower during the session, and our FOMO trade from yesterday is still alive and performing reasonably well. Given the Fed’s decision to cut by 50 basis points, along with the technical and fundamental outlook, we decided to build on yesterday’s trade and initiate another position in DHI for today’s trade.

DHI – Daily

Trade Details

Strategy Details

Strategy: Long-Term Deep In-The-Money Call

Direction: Bullish Long Call

Details: Buy to Open 1 DHI Jan 17, 2025 $170 Call @ $31.80 Debit per Contract.

Total Risk: This trade has a maximum risk of $3,180. We are using the option contract as a substitute for buying 100 shares of stock. The delta of the option is 0.80, which provides a good representation of the stock price movement. The concept behind this trade is to reduce risk compared to using all the capital to purchase 100 shares of stock. This way, the risk would be limited to the price you paid for the call option, or about 16% of the cost to buy 100 shares of stock. The number of contracts to purchase would depend on your plan for the outright stock purchase. For example, if your intention was to buy 300 shares, you would buy 3 option contracts. If you were looking to buy 200 shares, you would buy 2 option contracts, and so on.

Trend Continuation Signal: A bullish trade on a stock that has broken out of its trading range with strong momentum.

1M/6M Trends: Bullish/Bullish

Relative Strength: 9/10

OptionsPlay Score: 82

Stop Loss: @ $15.90 credit (50% loss of premium)

View DHI Trade

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

PLEASE NOTE that these prices are based on Wednesday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

View DHI Trade